How to multiply your money by spending your tax refund wisely
Individuals’ tax refunds are averaging almost $2500 this year, and savvy savers can turn that into a lot more cash by using some smart financial strategies.
Money
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Billions of dollars of tax refunds are flowing into households but 2020s surge in working-from-home tax deductions has not translated into bigger cash windfalls.
New data from the Australian Taxation Office shows more than 4.1 million refunds have been issued so far, averaging $2484 each. The average refund delivered in 2019 was $2464.
Changed working arrangements during COVID lockdowns are likely to impact work-related deductions, an ATO spokeswoman says.
“We know that (deductions for) working from home and for protective items are likely to increase, with claims for laundry expenses and travel expenses decreasing,” she says.
Using a tax refund wisely is more important than ever because of economic uncertainty.
Planning for Prosperity director Daniel Budreika says your top refund priority should be creating a cash buffer for emergency funding should coronavirus hit even harder.
“Any sort of cash buffer will be a massive help if things turn bad, such as you lose your job or there’s cashflow issues if JobKeeper gets switched off,” he says. “Work out what would be the minimum level of cash that would make you feel comfortable and allow you to sleep well at night.”
Emergency cash doesn’t have to sit in a bank deposit. If you have a mortgage it can be in an offset account or redraw facility, cutting interest costs for a bigger financial impact.
MBA Financial Strategists director Darren James says paying down high-interest debts such as credit cards can deliver a big bang for your buck.
With average interest rates near 20 per cent, the reduced debt delivers an effective 20 per cent financial return.
Superannuation contributions are another way to multiply the benefits of a tax refund, James says.
“Consider making a tax-deductible contribution to super,” he says. “Or a co-contribution to super – if you put in $1000 you could get up to $500.”
People earning below $54,837 can get some government co-contribution this financial year. Others with spouses earning less than $40,000 annually can get a $540 tax offset by contributing to their partner’s super fund.